Experts in the auto industry say the housing bubble that is bursting in warm, enticing states such as California, Florida, Arizona and Nevada has been drowning sales for Detroit’s automakers in some of their most important markets.
By far, sales of vehicles nationwide are down by 8.5 for General Motors Corp., the Ford Motor Co. and DaimlerChrysler AG. The struggling automakers in the process of coping up from the heavy losses they have experienced in the past few years.
California and Florida, once tagged as the largest auto markets in the United States, are experiencing sales doldrums. Art Spinella, the president of CNW Marketing Research in Bandon, Ore., said the two states are experiencing such weak housing markets that they are largely responsible for that decline, as well as the nation’s overall 2.4 percent decline in auto sales. He added, “The housing market and especially home values are behind much of the auto industry’s stumbling.”
Retail vehicle sales in dealerships during the first ten weeks of the year are off 17 percent in California and 11 percent in Florida. The figures can be ascertained from the CNW data. CNW conducts consumer and automotive research for automaker, analysts and purchasers to pore over.
Aside from the aforementioned states, Michigan is also suffering from real estate woes. In the said state, there is growing inventory of unsold homes, growing worry over home prices and an increasing number of defaults in the subprime mortgage market where homes are sold at higher interest rates to consumers with riskier credit profiles. The real estate business is under predominantly intense pressure in California and other markets, where appreciation and prices have once been remarkably strong and encouraged more thrill-seeking ventures.
Officials at both GM and Ford blame the sluggish real estate market as an explanation for weak vehicle sales. Detroit automakers already were underperforming in California, where Japanese automakers like Toyota and Honda excels. But the housing slump is destroying GM, Ford and Chrysler. Additionally, the results severely damage the already critical auto market. This year in California, sales are now off 6.6 percent for GM, 18.6 percent for Ford and 19.4 percent for Chrysler. The reason behind, as experts analyze it, is the decline of real estate sales.
Consumers who are anxious about their declining home values also are shifting more toward fuel-efficient cars, when they decide to purchase them at all. Toyota and Honda, with their Earth-friendly images, are benefiting from that trend. Volvo relay might not work but Saab?s flex cars could also appear magical to auto consumers.
Mike Jackson, CEO of the Ft. Lauderdale-based AutoNation Inc., which possesses 280 new-car franchises nationwide, including 80 GM, 48 Ford and 58 Chrysler stores, said he’s never seen the housing market take such a direct bite out of auto sales. “They’re reluctant to make a big purchase if they don’t know what their house is worth, even if they don’t want to sell it,” Jackson said. “They don’t know how it’s going to come out.”
Edward E. Leamer, a professor of management, economics and statistics and the director of the Anderson Forecast at the University of California at Los Angeles, said there are many parallels between the housing and automotive markets and their current suffering. He added, ?Low interest rates, set by the Federal Reserve in recent years, encouraged aggressive lending practices in both industries to entice consumers to make purchases sooner than they should have. I think it’s going to be a tough year for housing and it’s a tough story for autos.”